Wells Fargo confirms that it may pay $1-billion penalty over latest consumer abuses
Wells Fargo & Co. confirmed Friday that it might pay as much as $1 billion to regulators over its mortgage-lending and auto-insurance abuses — which would be the biggest penalty yet for the bank related to its long-running sales-practices scandal.
The San Francisco bank, in its first-quarter earnings report, said that it was in early-stage discussions with the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency over the possible new penalties.
The statement confirms reports this week that the bank was involved in such discussions.
“These preliminary results are subject to change due to our ongoing discussions with the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency to resolve matters regarding our compliance risk management program and our past practices involving certain automobile collateral protection insurance policies and certain mortgage interest rate lock extensions,” the company said in a statement.
The penalty would be the second major enforcement action against Wells Fargo this year. In February, it was ordered by the Federal Reserve to cap its growth while it worked to improve its corporate governance — for what the regulator called “widespread consumer abuses and other compliance breakdowns.”
The bank said the penalty could cause it to adjust its first-quarter earnings, but Chief Financial Officer John Shrewsberry said Wells Fargo could absorb the potentially huge civil penalty.
“Our financial results included continued strong credit performance, liquidity and capital levels,” Shrewsberry said. “We returned $4 billion to shareholders through common stock dividends and net share repurchases in the first quarter, up 30% from a year ago. Our capital remained well above our internal target, and returning more capital to shareholders remains a priority.”
The bank reported that its first-quarter revenue fell 1.4% from a year earlier, to $21.9 billion, but that exceeded the $21.7-billion average estimate of analysts in a Bloomberg survey. Net income rose 5.7% to $5.9 billion, also beating estimates.
The bank has socked away money to settle its ongoing regulatory problems. In the fourth quarter, Wells Fargo took a $3.25-billion charge against earnings to settle what it called “a variety of matters, including mortgage-related regulatory investigations, sales practices, and other consumer-related matters.” However, it warned it may have to take another charge of $1 billion to resolve the probe into its consumer businesses.
Wells Fargo has struggled to right itself since it agreed in 2016 to pay $185 million to settle investigations by the CFPB, the Office of the Comptroller and Los Angeles City Atty. Mike Feuer into the creation of millions of unauthorized accounts. It also has agreed to settle several class-action lawsuits for $142 million.
The bank did not admit any wrongdoing in the 2016 settlement, but said its employees had opened checking, savings and credit card accounts that customers never authorized. Wells Fargo’s sales practices were first reported by the Los Angeles Times in 2013 and were attributed to onerous sales goals.
The $100-million CFPB portion of the settlement was a record for the agency, which began operations in 2011. Any new penalty could dwarf that amount and would follow up on a threat by President Trump in a tweet to get tough on the bank.
The Times reported last year on a wrongful-termination lawsuit by a former Wells Fargo mortgage banker who alleged that the bank falsified records so it could blame mortgage-processing holdups on borrowers. The banker said Wells Fargo fired him for trying to report the practice.
Since the fake accounts scandal exploded and other wrongdoing has come to light, the bank has changed its chief executive and chairman and seen turnover on its board. But it still must show the Fed that it has improved its governance.
Until it does that, the bank will remain under close scrutiny and will not be allowed to grow its assets beyond $1.95 trillion, where they stood at the end of last year. Sen. Elizabeth Warren (D-Mass.) has demanded that the Fed’s Board of Governors vote on any reform plan and not leave the decision to lower-level staff.
Wells Fargo was hit with a billion-dollar-plus settlement in 2016, but that was unrelated to the consumer abuses it has been trying to rectify over the last two years.
The bank agreed to pay $1.2 billion to end a suit brought by regulators over federally insured mortgages it made during last decade’s housing boom that later went bad. The settlement, while large, was dwarfed by what some other banks had to pay, including Bank of America, which paid a record settlement that topped $16 billion.
Shares of Wells Fargo closed down $1.64, or 3.1%, to $51.06 on Friday.
Times staff writer Jim Puzzanghera, Bloomberg and the Associated Press contributed to this report.
2:35 p.m.: This article was updated with closing stock prices.
10:30 a.m.: This article was updated with additional earnings figures and background on an earlier settlement reached by the bank.
This article was originally published at 9:20 a.m.